Medicare rebate freeze: counting the cost to doctors and patients

7 June 2016

What happens when budgetary concerns drive health policy decisions?

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Health is shaping up to be one of the major election issues, with proposed changes to Medicare rebates and the Pharmaceutical Benefits Scheme (PBS) potentially costing patients more to receive health care.

Our new research shows that, by the end of June 2020, an average full-time GP will have lost A$109,000 in total income due to the freeze since July 2015.

By July 2019, this GP would need to charge their general patients an A$11.40 co-payment per consultation to make up for their lost income (relative to 2014-15).

Our modelling also shows the Coalition’s proposed increase to the PBS co-payment will most affect pensioners.

What is the ‘freeze’?

When GPs bulk-bill their patients, they directly charge the government for the service provided. What GPs are paid for each consultation depends on the Medicare Benefits Schedule (MBS) item charged, with longer and more complex consultations earning them more. A “standard” consultation rebate is A$37.05, while a “long” consultation rebate is A$71.70.

Traditionally, the amount for each item increases year to year to account for the increased cost of care. This is called indexation. Since July 2014, the government has paused or “frozen” this indexation. The government initially planned this freeze to last until 2017-18.

At the time, we modelled the effect of this initial freeze. We found that by 2017-18, a bulk-billing GP would have a relative income loss of 7.1 per cent (5.8 per cent to 8.5 per cent) compared with their 2014-15 level of Medicare income.

We concluded that if GPs wished to keep bulk-billing their concessional patients (those with a government health care card), they would need to charge their non-concessional patients an A$8.43 (A$6.71-A$10.16) co-payment for each consultation to make up this loss.

Using the same assumptions we used in our previous modelling, we found that by 2019-20, a bulk-billing GP will have had a relative Medicare income loss of 11.6 per cent compared to their 2014-15 income level (assuming a CPI of 2.5 per cent a year).

However, CPI has been lower than earlier projected. The CPI projections in the federal budget were 1.25 per cent in 2015-16, 2.0 per cent in 2016-17 and 2.25 per cent in 2017-18. Using these figures and assuming CPI of 2.25 per cent per year in 2018-20, we estimate a relative income loss of 9.4 per cent.

For an “average” GP (who bills 5,050 consultations a year), this 9.4 per cent income loss will equate to approximately A$26,300 in 2019-20 alone. For an average full-time GP (7,680 consultations a year, assuming 160 consultations per 40-hour week, 48 weeks a year) the loss of relative income will be A$40,000 in 2019-20.

By June 30 2020, a full-time GP will have lost a total of A$109,000 since 2014-15 due to the freeze.

What does this mean for patients?

The 9.4 per cent reduction in income may force GPs who bulk-bill to cover their loss by charging general patients (who make up 45.6 per cent of encounters) a co-payment. This co-payment would need to be A$11.40 to maintain 2014-15 levels of income.

Our estimates are conservative as they would be the minimum charge needed to make up for the GP’s lost income.

We did not account for:

administrative costs in implementing new billing systems

increased bad debt from patients who are charged, but never pay

the previous freeze of fees

lost income when a GP chooses to bulk-bill general patients facing financial hardship.

It’s therefore likely that GPs who opt to charge a co-payment will charge more than our estimates. Further, after abandoning bulk-billing, some GPs may take the opportunity to charge more than required to merely recoup their rebate loss.

A poll by Australian Doctor, a newspaper for GPs, found that over the next 12 months, almost one-third of the responding GPs said they would charge A$35 or more. More than half the sample said they would charge their general patients A$25 or more for a standard consultation.

In 2013, the Australian Medical Association (AMA) recommended a fee ofA$73 for a standard GP consultation. That equates to a co-payment of over A$35 if GPs chose to charge this amount, and even this would only be at 2013 AMA rates.

The freeze is likely to have a greater impact on practices that serve socioeconomically disadvantaged people, as the practices would have to absorb the reduction in gross income, which may not be viable.

Labor’s alternative

Isn’t Labor proposing to reverse the freeze?

Well, yes and no. Labor announced it will reintroduce indexation from January 1, 2017. This means the freeze will remain until then.

If the indexation were to be restored from 1 July, the increase in the benefit paid to doctors would be around 60 cents. 60 cents. And by 2019-20, it would be A$2.50.

This is true only if you are talking about the rebate for a single “Level B” item (which is below the average rebate per consultation) and if indexation was set at only 1.65 per cent a year, well below the CPI projections in the 2016 federal budget.

A more accurate estimate would be to use the average rebate claimed per consultation (A$50) and use the CPI projections in the budget. This would mean an average increase per consultation of A$1 in 2016-17 and A$4.50 in 2019-20.

Compared with continuing the freeze, the indexation would mean an additional A$34,700 in earnings in 2019-20 alone for an average full-time GP and an additional A$84,400 combined to 2020.

Changes to the cost of medication

The government subsidises the cost of important medications through the PBS. General patients currently pay a maximum of A$38.30 for a PBS-subsided medication and concessional patients pay a maximum of A$6.20. These thresholds are indexed yearly, usually in line with CPI.

In the 2014 federal budget, the Coalition proposed that these co-payments increase by A$5.00 and A$0.80 respectively – additional to the regular indexation. So far, this proposal has been blocked in the Senate, but associated savings are included in the May 2016 budget.

While it would seem that the A$0.80 increase for concessional patients is small, our modelling from 2014 shows this increase would be larger in dollar terms for concessional patients. Nearly all medications prescribed for concessional patients face this increase, whereas only a fraction of medications prescribed to general patients cost more than the current threshold, so far fewer medications would incur an additional cost.

An average 45- to 64-year-old would pay an additional A$12.99 a year if they were a general patient and A$16.59 if a concessional patient.

The patients most impacted by the PBS co-payment increase will be aged pensioners, who on average would see their co-payment for medications increase by A$29.65 a year.

These estimates are conservative as they only include the number of instances where a script is written and do not include any repeats scripts provided on these occasions.